Investing in Silver Bullion
Investing in Silver: How to Buy Silver as a Secure Investment
This page looks at how to source and buy the right kind of silver for investment, how this compares with other ways of investing in silver and how to ensure you only deal with trustworthy silver dealers.
As well as the how what and where, we look at the pros and cons of using silver for investment purposes, including the risks involved.
Ways of Investing in Silver
Why Silver Bullion?
Benefits of Investing in Silver
Investing in Silver for Beginners
Of all the physical precious metals, investing in silver offers beginners by far the easiest access point to the market.
This is largely due to silver’s comparatively low price per unit, making silver bullion bars and coins a much more attractive proposition than gold.
At current prices you can invest in 85 ounces of silver for the same price as an ounce of it’s richer sibling – meaning you can choose between having a good-sized handful of silver or a tiny 1/10oz gold bar for the same capital outlay.
The “gateway drug” to metals investing, a silver bullion buy just makes perfect sense as the first step.
Silver is Easier to Get Started With
Buying silver for investment carries less capital risk especially when making your first buy – even the smallest test investment of say $200 – $500 will set you up with a good selection of bars and coins.
What’s more, due to their lower total value there is much less worry when working with a new bullion dealer, or in shipping and storage than you’d have when buying even a single 1oz gold coin.
Physically handling the metal and feeling the weight – all while enjoying the special glint of silver – helps give a first-time investor a real connection to your newly acquired bullion. It’s a much more rewarding metal to own and handle dollar for dollar, giving investors a lot more enjoyment than the very small amount of gold you could buy at an equivalent price.
This is especially so when it comes to chunky poured (cast) silver bullion, satisfyingly solid and due to how they are manufactured there’s little risk of even copious handling having any effect on value.
Uncirculated bullion coins on the other hand, can see resale values affected by scratches and marks if over-handled.
Silver’s lower investment risk carries over to risk of theft and fraud too.
A few 5oz cast silver bars or small pile of silver coins will be unlikely to interest a burglar in the same way as your laptop, tablet or widescreen TV.
With silver there’s less need to invest in a good quality safe until you start to grow your silver investment above a threshold you’re uncomfortable with – adding further to silver’s low barrier to entry.
And because silver bars and coins are weight for weight 85 times less valuable than gold, fake silver bullion is considerably less common than gold. Although silver fakes do exist, because they have a similar manufacturing cost to fake gold, but with lower per-unit profits, selling fake gold is simply a better proposition for the average fraudster.
Cheaper to buy, safer to hold and with less need to be fake-aware, no wonder silver is the top metals investment for beginners.
What about larger-scale investments when you’re new to silver?
If you’re new to silver but want to get started around the five-figure mark or higher you’ll need to think differently to someone buying a couple bars and some coins. This is because some of the advantages small scale home investors enjoy, don’t carry over so well at scale.
Like gold, silver is a heavy-weight metal but because you require 85 times more silver than gold to match a gold investment, silver will be a far heavier investment to store.
Silver is also less dense than gold which at 19.32 g/cm3, is almost double silver’s 10.49 g/cm3 meaning an ounce of gold takes up half the space of an ounce of silver.
$25,000 in gold may only weigh a pound and take up less space than a small cappuccino, but $25,000 in silver weighs in at a hefty 85lb. You’d need a lot of cups to hold 1375 silver coins!
This means a larger-scale investor is less likely to handle their silver investments, or store them at home opting instead for professional bullion vaulting. Secure vaulting does away with the risk of theft and even means the metals can be bought in a tax-advantaged way.
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Ways of Investing in Silver
Much like investing in gold, there are three principal ways of investing in silver:
- buying the physical metal either as bullion bars or coins
- buying a paper derivative of silver such as an Exchange Traded Fund (ETF)
- buying shares in silver mining and exploration companies
The first method – buying silver as physical bullion bars or coins is both the most straightforward and the only true way to directly invest in silver.
Silver bullion has a far lower unit cost typically between 85-65 less expensive than gold ounce for ounce. This makes silver easier to buy, giving investors in physical silver a lower barrier to entry.
While the other silver investment methods do track silver’s price to a greater or lesser extent, they are simply a paper or digital proxy, which may or may not be supported by a vault of physical silver.
The second and ever popular as a silver investment proxy, silver ETFs are usually backed by physical metal, even if in practice this may cover only a fraction of the value of all certificates.
There are funds backed by more physical silver than others – however there are also “silver” funds with literally no silver backing them at all.
With these paper silver derivatives, there is always a danger that should more people suddenly wish to cash in and convert their paper to silver than the fund actually owns, then there could be a default.
It’s an unlikely scenario, but increasingly possible given current leverage in the system.
Few silver derivatives markets receive more predictions of default than COMEX – it seems barely a month goes by where one publication or another isn’t predicting the imminent collapse and default of this silver futures and options market, however – so far – these predictions have come to nothing.
The emphasis is on so far.
The third and other non-silver silver investment is silver mining shares (called miners) an often high-risk investment with an opportunity for extraordinary profit in the event of a large new silver find, but also a very real chance of loss where a heavily-funded mine exploration strikes out. A few big misses for a mining company and it’s lights out.
Silver miners are particularly at risk when silver prices are weak and the cost of mining and refining is greater than or close to the current market price. Over the past few years, silver has frequently dropped below it’s cost to mine – a steal for investors looking to buy the metal, but terrible news for mining companies.
Mines may reduce staff , limit their output or even close their mines for a time in order to reduce overhead – but if silver’s price stays below, at or only slightly above the market price for any length of time as it can and does, then the mining companies can be at risk of bankruptcy and with that your mining shares becoming worthless.
Of course even if a miner does close, the physical silver continues to exist within the ground and the land will hold it’s value waiting for a new miner to take advantage of a stronger market.
Your shares in the original mine will remain as worthless pieces of paper.
Which brings us back to the real metal: physical silver bullion, which either as part of a tax-advantaged retirement account, an asset in your diversified investment portfolio – or a stack of metal sitting in your home safe – will help diversify your assets and maintain your wealth.
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Why Silver Bullion?
Why silver bullion and not other forms of silver investment?
As already mentioned there is a risk of default or total loss in paper derivatives of silver, something that’s far less likely in the physical commodity – so if we’re going to buy silver we like to buy the actual metal.
But physical silver is commonplace in other forms too – from ornaments and flatware to jewelry and even old coins.
Bullion dealers sell bags of scrap coin – old worn currency that’s between 40%-90% pure and this can offer one of the lowest price routes into silver. Some silver coins are still in circulation and “coin-roll hunters” will wade through boxes of nickels and dimes looking for this hidden treasure, picking up a dollar’s worth of silver for a few cents.
Many home investors collect scrap silver in the form of damaged silverware and broken jewelry, as much of it is 90% pure or “sterling” silver at 92.5% pure – which can be picked up in thrift stores and yard sales for pennies on the dollar if you have your wits about you.
Scrap silver investors are wholly interested in weight and will break up and crush their silver occasionally cashing in their haul at a dealer – and walking away with either cash – or as is more often the case bullion.
Why bullion? Because bullion is universally traded, easily valued, bought and sold and can be stacked efficiently in vaults – none of which old broken cups and silverware can claim!
Benefits of Investing in Silver
1. Silver Offers Excellent Value
As we’ve already looked at, silver is currently 85 times less expensive than gold. This means the gold/silver ratio is currently 85:1.
In weight per dollar silver is comparatively far better value than gold – but this is not what we mean by offering excellent value. Silver offers amazing value in another way…
The gold:silver ratio has not always been 85:1 – in fact it’s only rarely been this high. Across the 20th century the ratio averaged a much lower 47:1. The last time the gold/silver ratio was at these levels was immediately before the great financial crash of 2007/08. The time before that, it was the major recession in 1991.
The ratio typically spikes like this either during an economic crisis or immediately prior to one. Whilst our money markets are currently giving the appearance of being robust, analysts are warning of overvaluations and overheating – so logic dictates the latter.
What this all means is silver is currently massively undervalued in relation to gold – and chances are high we’re on the cusp on another financial crisis – an event which typically benefits safe-have precious metals prices.
Crash or no crash, something that’s for certain is the ratio is currently 60% higher than it’s 20-year average and under market pressure to normalize to it’s mean value.
And this would give a significant boost to the price of silver.
2. Silver is an Excellent Hedge and Portfolio Diversification Tool
As with gold, when paper markets dive, silver tends to climb. This is not always the case, particularly because silver has a number of industrial uses, but there is enough of an accepted correlation to mean investors use silver to hedge their bets on market movement.
If they think stocks will rise, they buy some silver just in case stocks fall. If it seems we’re on the verge of a crash, they’ll buy silver (and gold) as a safe-haven investment.
Given silver’s undervaluation in relation to gold, it’s even a useful hedge within a precious metals portfolio. If market forces see the gold/silver ratio return even close to it’s median value silver will have to rise in price considerably, even allowing for a small drop in the price of gold.
Asset diversification is the only real way to safeguard against market risk.
While gold is typically the best-known hedge for paper market losses, it turns out silver is the hedge’s hedge!
3. Silver Can Outperform Gold in a Bull Markets
As we established in our gold section when the banking sector, housing market and paper stocks crashed in 2007/08 gold entered a major bull market. Gold’s overall gain from a 2008 low to it’s 2011 high was an incredible 166% – more than making up in many cases for losses in well hedged accounts.
But silver? Thanks to silver’s greater volatility, during the same time period silver bullion saw a massive 448% hike, beating gold by almost 300% .
When you’re interested in investing in silver, you’ll soon see that this wasn’t a one-off occurrence: from it’s 1970 low to a 1980 high silver rose a whopping 3,105% – nearly 1000% higher than gold’s rise.
Even across shorter time periods, in mini-bulls, it’s silver’s greater volatility that sees traders profiting so much from the metal’s market swings, compared to gold’s more sedate progress.
Silver’s industrial uptake only helping things along…
4. Silver’s Industrial Uses Are Key to New Tech
Much as platinum and palladium are used in vehicle catalysts and are being touted as potential replacements for lithium and cobalt in the next generation of rechargeable batteries – silver has a vast and ever growing range of uses across the tech world.
Thanks to it’s excellent electrical and thermal conductivity, almost every piece of modern electrical tech from smart phones and tablets to laptops and televisions contains silver. Chinese phone manufacturer Huawei alone claims to have sold 200 million phones in 2019 – a similar amount to apple – and data for 2018 shows a total of 1.56 billion smart phones were sold worldwide in that year alone. 2019’s figures already suggest a record year for high-tech phones.
Considering every smart phone contains approximately 0.33g of silver, this means 2018’s new cellphones devoured almost 11 million troy ounces of silver – and we say devoured because it’s rare that smart phones are recycled for their silver content.
Another huge growth area for silver is in solar panels. The photo-voltaic cells used to turn light into electricity contain a thin layer of silver metal. As we increasingly turn to alternative sources of power in a bid to reduce carbon emissions, solar panels are on the rise and in many cases being built into all new homes by law.
Increased use in photovoltaics and other tech from consumer electrical goods to medical devices along with new plastics tech requiring silver as a catalyst, all mean silver’s demand is only going to keep rising.
And with increased demand, comes higher market prices.
5. Silver Helps Offset Inflation
In much the same way as gold, silver is an excellent store of wealth and value. Along with gold, silver was used as money, first as literal gold and silver coins and later with gold and silver-backed paper currencies.
Silver is still circulating as money in America today. Old nickels, dimes, quarters and half-dollars contain between 90%-35% pure silver – small wonder these coins are being snapped up by silver stackers thanks to their metal value being far greater than face value.
Why are these coin’s metals now worth more than their face value? Inflation.
After the US government decoupled the dollar from precious metals they were free to create as much paper money as they wanted, first printing and then adding zeroes onto computer spreadsheets. All this has done is devalue the dollar and the resultant inflation has seen the dollar’s spending power decrease every year.
There is 0.0723 troy ounces of pure silver in a 1964 dime. Back in 1964 silver was $1.29/oz meaning a dime contained 9.3 cents worth of silver, giving the dime it’s dime value.
If you’d taken a 1964 dime and a base-metal coin from the following year – and put them in a box, what would they both be worth today?
The 1965 dime would still be worth a dime. The 1964 dime with it’s 90% silver content is now worth $1.32 as scrap silver (or if you don’t know what you were holding – a dime!)
Your silver dime has seen a 1220% increase in value, due to inflation – or more realistically your 1965 dime has lost 1220% of it’s spending power.
Little wonder silver and gold are the only real forms of money remaining in our world of paper currencies.
6. Silver has Worldwide Investment Demand
Another key benefit of investing in silver is demand. An important factor in any investment is being able to sell your asset quickly. Silver is universally accepted as a valuable asset, both in monetary terms and culturally no matter where you are in the world.
Although some countries in the Middle East prefer gold to silver, for us in the west silver is our most commonly bought and sold physical precious metal.
For smaller investments this demand and competition to buy, means you can be certain you’ll be able to sell your silver bullion quickly and for a fair price whether you’re in a cosmopolitan city or small town – and for larger investments, no matter what happens to the global economy, there will always be a market for silver.
When everybody wants it, you’ll never have trouble selling.
7. Silver is Highly Liquid
Part and parcel to high demand, silver investments are highly liquid. You can buy and sell silver on global markets in minutes or transfer from one vault in one country to another elsewhere through a swap with a few mouse clicks.
With well over USD $15bn flowing in daily trade, silver investments are one of the easiest assets for everyday investors to buy and sell.
Whether over the counter, from vault to the dealer, or on a digital exchange – silver moves fast with minimal spreads.
8. Silver is Inert
Chemically classified as a “noble” metal, silver is among the least reactive of metals.
Not typically a major concern for most investors, pure silver, like gold is chemically stable – meaning it only reacts to a few strong acids. Although silver’s surface layer will tarnish lightly in the atmosphere and blemish if handled due to oils in our hands, a quick buff will rapidly return shine to the metal.
It’s the definition of a buy and forget asset, sitting without any risk of degradation for decades, even centuries.
We know that paper money when stored in bulk without being correctly wrapped and in the right environment can crumble to dust in a matter of months. That’s not the case with silver and this is one of the main benefits of investing in silver for “preppers” – a cache of pure silver bullion buried underground can last indefinitely.
Or at least until a prepper’s end-game, when the proverbial SHTF.
Disadvantages of Investing In Silver
1. Silver Has No Yield
Although this disadvantage is most commonly laid at gold’s door – it can be held true of silver too: Silver doesn’t pay any dividends or interest.
While this is certainly a valid point, it’s just not a valid argument – because silver bullion simply isn’t this type of asset. Investment grade silver is a real asset, as in real estate and other physical investments. Saying silver doesn’t pay a yield is not so much comparing apples with oranges as apples to a mountain.
Houses don’t pay dividends. Works of art and antiques don’t pay interest. Neither does land, or investment wine. Come to mention it, there is not a single physical traded commodity or other physical investment where the object itself DOES pay a yield.
It’s what you DO with the commodity that can generate a yield – and that’s why derivatives of commodities can and do create yields. Renting a house or land generates a yield. Creating a technical instrument such as a silver future or silver fund creates yield.
Unlike dividend-bearing stocks or interest-bearing cash, silver has enjoyed a 2667% price increase between 1920 and 2020 – an averaged 26% annual return – and as a long-term asset it comes with numerous tax advantages not enjoyed by these other assets.
These advantages more than offset silver’s lack of paid dividends, especially alongside your diminishing dollar.
2. Silver Comes With Storage and Insurance Costs
Again this is true – as a real asset and a valuable commodity, silver bullion should be stored somewhere safe and be insured against theft.
But thanks to the competitiveness of professional vaulting services, vaulting and insurance fees are broadly on par with the annual charges on any managed broker account or trading platform.
In terms of value, you’re getting a lot of security bang for your buck. Armed guards, blast-proof vaults, vast concrete walls and 5-foot thick steel doors don’t come cheap.
With digital assets, what are you actually paying for?
3. Silver Can Be Volatile
In the short term, the price of silver can be very volatile. With a much lower trading volume than gold (typically 10-15% of gold depending on the market), silver can be far more reactive to big buys or sells and good or bad news in related industries.
Silver infamously responded to a giant buy in 1980 after three billionaire brothers attempted to manipulate the silver price, buying a third of the entire liquid silver market through some highly leveraged futures trades.
The price responded by shooting up 713% over 17 days to an all-time high of $49.45/oz and then fell 50% in 4 days. It didn’t end well for any of the parties – billion dollar government bail outs stopped financial institutions from defaulting – and the brothers declared bankruptcy.
Although this case is exceptional it does demonstrate silver’s volatility – however it’s silver’s short term volatility which leads to vibrant trading markets, with silver making commodities traders rich on both price drops and rises.
If silver’s volatility and potential for profit is too rich, there’s always rock-steady gold.
4. Silver Mining is Not Environmentally Friendly
Silver is typically brought to market as a secondary byproduct of mining other metals – copper, zinc and gold. Less than a third of silver production comes from specific silver mines.
Industrial-scale mining of any type cannot ever be called environmentally friendly, but in silver’s case the metal is usually found as part of another operation. The mine is there already and silver is a happy extra.
Modern silver-specific mines on the other hand are working hard to clean up the miner’s act using new technologies and mining methods to reduce harm – and giving back to the communities in which they operate. It’s taken a while, but the industry has finally realized it needs to reduce the harm it causes.
Another plus for silver is a big growth in recycling. With silver’s value increasing and recycling technologies improving we’re seeing industrial and scrap silvers being recycled where once they were discarded.
Although there are still industrial uses for silver which see the metal chemically destroyed – there are new industries being created getting every ounce of scrap silver and gold out of discarded electronics and industrial waste. Silver’s presence in scrap even forms an essential ingredient in gold’s chemical re-refining process.
Silver like gold, is the ultimate in recyclable metal.
Silver’s advantages far outweigh the metal’s disadvantages making it in our opinion, one of the top buys currently available in alternative asset investments.
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Investing in Silver Vs Gold
Although there are some ardent “silver stackers” who will only ever invest in silver bullion and coins, it’s rarely a case of investing in silver OR gold – but rather each metal has different uses in a well-diversified portfolio.
Gold is a useful diversification investment much as silver and helps to create a balanced precious metals portfolio that will perform better in some circumstances than a portfolio only holding silver. Gold is a far less volatile investment than silver and can help smooth the effects of silver’s wild leaps.
As we mentioned earlier, gold takes up far less space for a dollar equivalent amount and when you’re talking $50k or $100k in silver that’s a huge storage saving when swapping to gold.
This means there’s no need for such a large home-safe – and if you store your metals with a third party, there will typically be lower vaulting costs associated with gold.
Gold can easily be physically traded by small-scale investors, typically being sold to buy silver when gold peaks, or vice versa – and it’s during this physical trading where gold can be a better bet than silver. Thanks to tax.
Silver and gold can be taxed very differently in some jurisdictions. Although not always the case, silver being an industrial metal can sometimes attract sales tax or VAT at the full rate, where gold bullion is zero-rated. Paying an extra 20% in tax for $10,000 of silver compared to paying zero tax on $10,000 in gold is going to swing many gold’s way for even the most loyal silver fan.
In short, gold regularly forms part of a wider precious metals portfolio which can also include silver, platinum and palladium, all metals that perform differently in various situations, and when combined produce a well diversified and potentially potent mix for capital growth.
As always, it pays to talk with a precious metals specialist to discuss your situation and learn what silver and gold can both do for you.
Where to Start Investing in Silver
When first looking for silver bullion to buy, most of us begin with an online search. The internet has been a godsend to silver investors, making it easier to find both the right information when making investment decisions and to track down trustworthy and reliable silver bullion dealers.
As well as looking for a dealer, we’d recommend you look for free Silver Investment Guides which will help you not only learn more about investing but also give you some initial insight into what different bullion dealers are like to deal with.
There are currently over 1400 bullion dealers listed in the industry directory and hundreds more smaller companies who are not – so it’s not like you will ever be stuck for choice. Dealers know this and are really having to bring their A-game to compete with the best in the industry.
Many dealers have excellent websites and offer free shipping so making your first small test purchase is never a difficult process. A few silver bars and coins are a good place to start if you’re nervous and would like to test the water with a new dealer.
Online auctions have become notoriously bad for selling fakes, as have a number of importer sites. Although this is more common with gold bars, it still pays to stick with a known national brand or a trusted local dealer for your first test buy.
Precious metals are solid long-term investments, but being a high-cost acquisition, it’s important you make sure your investment journey starts off on the right foot.
Whether you’re buying retail, through a silver investment company or IRA specialist making sure you are both compatible is paramount for smooth and happy investments.
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Silver Investment Companies
With physical silver bullion investing your main choices are to buy through local coin shops, online e-commerce stores with simple self-serve checkouts – or through professional precious metals investment companies like Goldco.
Silver investment companies can offer a full range of advisory services, including investment and portfolio advice. For those specializing in areas such as Precious Metals IRAs or offshore vaulting, this specific advice can be worth it’s weight in gold.
Professional investment companies will typically have a minimum investment amount, usually $25-$30k. This is due to there only being small premiums in silver bullion, with companies making as little as 1% profit on any deal, despite holding your hand and carrying out all elements of the investment process for you.
These companies can offer excellent value for both new and seasoned investors, often having reduced vaulting fees and special wholesale prices thanks to the enormous economy of scale on which they run.
Where coin stores may focus advice on special collector coins, and not low-premium silver bullion – and e-commerce help desks are only there to help with checkout issues and malfunctions, the key difference with silver investment companies comes down to the quality of both their service and advice.
The professionals hired by these companies know the silver investment market inside out and are capable of advising on anything from current and future market conditions, to pending changes in legislation and will be just as happy to help with selecting items to best match your appetite for risk as they are to help transfer your 401k to a silver IRA.
Although there are thousands of small-scale metals dealers, professional Silver Investment Companies are much fewer on the ground and will usually be centered around precious metals trading or vaulting centers such as New York, Southern California, Texas and Miami.
For any investment over $25,000 we’d always recommend the expert help they provide over any other method of buying – especially for a newcomer to precious metals.
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